TIDMRUR
RNS Number : 4572N
Rurelec PLC
30 September 2021
30 September 2021
AIM: RUR
Rurelec PLC
("Rurelec" or "the Company")
Interim results for the six months ended 30 June 2021
Rurelec PLC (AIM: RUR), the owner, operator and developer of
power generation capacity internationally, today announces its
unaudited interim results for the six months ended 30 June
2021.
Financial Highlights:
-- Operating loss: GBP0.44 million (2020 GBP0.58 million)
-- Post tax (loss) / profit: GBP0.88 million loss (2020: GBP0.68
million profit)
-- (Loss) / profit per share: 0.16 pence loss (2020: 0.12 pence
profit)
-- Net asset value per share: 2.5 pence (2020: 3.9 pence)
-- Net cash balance: GBP0.28 million (2020: GBP0.60 million)
Operational and Post Half-Year Highlights:
-- 24 per cent. reduction in operating losses compared to the
same 6 months in 2020, and a significant reduction compared to
GBP2.91 million operating loss for the full year ended 31 December
2020. However, this improvement does not result in improved cash
generation owing to issues in receiving cash remittances caused by
changes in power generation tariffs in Argentina (see details
below).
-- The significant reduction in operating losses compared to the
full-year result for the year ended 31 December 2020 is due to a
charge of GBP1.83 million in the previous year within Other
Operating Expenses following the year end impairment review of the
investment in Patagonia Energy Limited ("PEL"), (the joint venture
company which owns EdS and in which Rurelec has a 50 per cent.
share) . This review was necessary as a result of a revised
assessment of the ability of EdS (the Group's share in an
Argentinian power generation business) to generate future cash to
remit to PEL, the joint venture vehicle through which the Group's
investment in EdS is held. No additional impairment was deemed
necessary at 30 June 2021.
-- Compared to the same period in 2020, the main factors behind
the reduction in administration expenses from GBP0.58 million in
2020 to a GBP0.44 million in 2021 is a reduction in Directors and
staff costs of GBP84k and the prior period Chilean bond renewal
costs of GBP55k.
-- At a pre-tax level, the results for the six months ended 30
June 2021 are adversely affected by exchange rate movements of
GBP0.43 million compared to a foreign exchange gain of GBP1.26
million in the first six months of 2020. This is the key reason
behind the swing in profitability from a profit before tax of
GBP0.68 million for the first six months of 2020 to a loss before
tax of GBP0.88 million for the same period in 2021.
-- Cash balances held at 30 June 2021 were GBP0.28 million (30
June 2020: GBP0.60 million). As a result of delays to, and
downgrades in the level of, the new tariffs at which EdS's power
generation is remunerated, no cash was received from PEL in the
first 6 months of 2021 compared to GBP1.12 million in the same
period in 2020. Since the period end the Company has received US
$0.48 million/GBP0.35 million from its Joint Venture. The reduction
in current and non-current receivables was largely the result of
impairments made against loans made by the Company to PEL as
referred to above.
-- Reserve movements reflect the second stage of the Company's
capital reconstruction, completed in the prior year, this process
enabled a GBP28.37 million movement from non-distributable to
distributable reserves.
-- Chile -The Board continues to explore options for the Chilean
operations following the successful sale of the Frame 6B turbine
sale for US $1.0 million/GBP0.72 million which was agreed on 9
September 2021.
-- Two Siemens Westinghouse 701 128 MW gas turbine generators
("701s"). The board continues to seek buyers for these generators,
which are probably most suited to power projects in emerging
markets. Having been overhauled to zero hours, and their ability to
run on multiple fuels means that they should be attractive to the
right project, but suitable projects with credible financing are
not commonplace, and therefore this initiative requires patience
and tenacity. As previously announced the disposal of these assets
would likely be a fundamental disposal pursuant to AIM Rule 15, and
accordingly such sale would be conditional on matters including
shareholder approval.
Commenting on the results, Andy Coveney, Rurelec's Executive
Director, said:
"The Board continues to pursue measures to restore value to the
Company and its shareholders through selling or developing assets,
and from cash receipts from the power generation plant in
Argentina. To this end our JV partners, with whom we have a
constructive and close relationship, are working hard under
pressure from us, to negotiate for an enhanced tariff in Argentina.
Meanwhile the recent sale of the Frame 6B turbine sale for US $1.0
million is in line with our strategy and improves the liquidity of
the Company. We continue to look for ways to reduce costs
throughout the Group, but future savings are likely only to be
small and opportunistic, as the business has already had to adapt
to its difficult circumstances."
For further information please contact :
Rurelec PLC WH Ireland
Andrew Coveney Katy Mitchell
Executive Director Megan Liddell
+44 (0)20 7549 2839 +44 (0)20 7220 1666
Executive Directors' Statement
Review of Operations
Argentina
Following the 2019 US$6 million major overhaul and repair of its
steam turbine and the refurbishment of one gas turbine, EdS resumed
a steady and consistent output which continued throughout the first
6 months of 2021.
Despite the plant performing well, the economic situation in
Argentina remained in crisis:
1 . High inflation and a decline in the value of the Argentinian
peso against the US Dollar led to the Argentinian Central Bank
tightening exchange controls in September 2019. The exchange
controls on US Dollars have a direct effect on the cash remittances
by EdS to PEL, the latter not being resident in Argentina. The cost
of transferring money out of Argentina has increased dramatically
since February 2020. In 2020 the loss suffered on transferring US
Dollars out of Argentina was approximately 43 per cent of the
underlying face value and a similar situation persisted in the
first 6 months of 2021. The duration and severity of these controls
remains uncertain.
2 . Delays have been experienced by EdS along with other
generators in Argentina in receiving payments of revenue from
CAMMESA (the wholesale electricity market regulator and
administrator).
3 . In March 2020, the Argentinian Government announced a policy
change whereby energy spot prices will no longer be linked to US
Dollars but to Argentinian Pesos retroactively to February 2020 and
will be updated monthly from March 2020. This increased the foreign
exchange risk of operating in Argentina.
4 . The Resolution 220 Power Purchase Agreement ("PPA"), which
governed the tariff by which the output of the Steam Turbine was
remunerated, expired in September 2020, after which, amidst severe
economic weakness in Argentina and a political stance of a new
Government which is generally unfavourable to the power producing
companies, the output was remunerated under Resolution SE 31/2021
("Resolution 31") which governed spot prices. That spot tariff was
significantly lower than the previous Resolution 220 tariff.
5. The Argentinian economy remained weak, and the Argentinian
Government continues to struggle with COVID-19 related problems.
The Directors also understand that the effects of COVID-19 were a
material factor in delays to the finalisation of the Resolution 31
tariff.
Since the expiry of the Resolution 220 PPA, the management of
EdS, together with support from external advisers and the Rurelec
Board, were engaged in extensive negotiations to establish a new
tariff for EdS's power generation. These negotiations were held
with CAMMESA, and the Secretariat of Energy who have ultimate
responsibility for the policies and tariffs that control the
generation and regulation of electricity supply in Argentina.
During these negotiations, EdS management had access to the very
highest levels of national and regional Government and also within
CAMMESA. EdS's management believes it was granted this access
because it is a strategically important supplier of power in the
region around Comodoro Rivadavia in southern Patagonia. However, in
the meantime, until a new tariff was operational, capacity and
offtake revenue generated from the Steam Turbine was remunerated at
Resolution 31/2021 spot prices. This had significant adverse
implications for EdS's revenue and cash generation, and adversely
affected cash payments due from EdS to PEL and ultimately to
Rurelec.
Between the expiry of the Res 220 PPA in September 2020 and 30
June 2021, the only cash the Company received from EdS via PEL was
US $224k/GBP174k on 23 October 2020. In the 6 months to 30 June
2020 EdS generated sufficient cash to make unsecured loan
repayments to PEL of US $1.82 million/GBP1.40 million, of which
Rurelec received US$1.44 million/GBP1.12 million, in partial
repayment of the Amended and Restated Loan Notes (the "Loan Notes")
that were created as part of a new agreement with the joint venture
partner in November 2019. This agreement set out how cash receipts
in PEL will be allocated between the joint venture partners and
represented a major step forward in our mutual working
relationship. After the end of the period under review, on 14 July
2021, Rurelec received a further payment of US$0.48 million/GBP0.35
million from PEL by way of partial repayment of the Loan Notes.
On 2 June 2021, the Rurelec Board announced that the Argentinian
Secretary of Energy had issued a new tariff under Resolution SE
440/2021 ("Resolution 440") which replaced Resolution 31 which had
governed spot prices. This impacts the price at which EdS can
charge for the electricity it generates. Resolution 440 introduces
the following changes to the existing Resolution 31 tariff:
-- Spot generation tariffs increased by 29 per cent. on average.
This increase was retroactively applied from February 2021.
-- Spot prices were no longer linked to the US Dollar, but
instead are linked to the Argentine peso.
-- Steam turbine and gas turbines capacity and offtake revenue
were both to be remunerated under the Resolution 440 tariff.
Previously just gas turbine offtake was remunerated under
Resolution 31.
Despite the increases in Resolution 440, the income generated
under this new tariff is significantly lower than under Resolution
220. Accordingly, the Directors anticipate that EdS's revenue has
been significantly adversely impacted by this change.
In response to the decline in tariffs, the Directors of Rurelec
understand that EdS's management has formulated contingency plans
to reduce costs including options to shut down parts of the EdS
operation (e.g. the Steam turbine) if necessary. Whilst this is
intended to restore EdS to viability it is uncertain whether EdS
will generate sufficient cash to remit to Rurelec via PEL.
The adverse overall impact of the tariff changes may, however,
improve following the conclusion of the "enhanced tariff"
negotiations which continue to take place between EdS management
and the Argentinian Secretariat of Energy, albeit there is no
certainty when these negotiations will be concluded or what their
impact will be. Until then, EdS's revenue and cash generation will
continue to be affected, which in turn will influence the timing
and amounts of any cash payments from EdS to PEL in repayment of
the Loan Notes and ultimately to Rurelec. Accordingly, Rurelec will
continue to have to be extremely cautious with working capital
particularly in the absence of asset sales.
The balance outstanding on the Loan Notes at 30 June 2021 was US
$14.95 million (2020: US $15.48 million), with the first US $5.0
million of repayment shared 80:20 between Rurelec and Basic Energy
Limited, the ultimate shareholders of PEL, and 72:28
thereafter.
Chile
In Chile, the necessary environmental consents and land leases
were maintained in order to extend the project and the Board
continues to review options in the light of the risks versus
rewards of undertaking this project.
Asset disposals
Asset disposals to boost Rurelec's cash reserves are an
important part of our strategy. On 9 September 2021 the Company
agreed the disposal of its Frame 6B Gas Turbine that has been
stored in Chile for US $1.0 million /GBP0.72million. The turbine
was held at US $0.50 million/GBP0.37 million in Rurelec's Group
2020 accounts.
Head office
A tight rein continues to be maintained on overheads in the UK
and administration costs for the period fell slightly to GBP416k
(2020: GBP491k).
Debt repayments and Cash flow
As expected, Rurelec remained free of any secured debt and was
consequently in the position of not having to pay any interest.
Due to the lack of receipts from PEL from 1 January 2021 to 30
June 2021, cash reserves fell compared to the previous year such
that at the end of the period the balance was GBP275k (2020:
GBP604k).
Liquidity remains a significant issue for the Group. The Group
has been able to cope with variability in the timing and quantum of
cash receipts from Argentina due to long term reductions in Group
operating costs which throughout 2019, 2020 and 2021 are at lower
levels than in previous years. The cash position is expected to
recover further in line with expected remittances from EdS and PEL
and, if and when sales of remaining assets are achieved by the
Group. However, there can be no guarantee as to the timing of any
such asset sales, nor regarding when any further cash will be
received from Argentina owing to the multiple uncertainties
outlined above. In particular there is no guarantee that the
remuneration level of the tariff/PPA/spot prices will be further
improved by the "enhanced tariff" negotiations that continue to
take place with CAMMESA and the Argentinian Secretariat of Energy
or that EdS will remain economical. The Directors consider that
there is a reasonable prospect of a better tariff resulting from
the negotiations in Argentina.
Given the cash balances held by the Group, expected cash
remittances from our Argentine operation and potential asset
disposals, the directors continue to adopt the going concern basis
of accounting.
Review of future strategy
The strategy of the Group continues to be focussed on
stabilising the financial position, keeping costs under tight
control, whilst certain assets are sold. The underlying strategy is
to preserve the value of the Group assets and to generate cash.
Given the Group is debt-free, this will in turn enable Rurelec to
maximise returns to its shareholders though, as reported in the
Audited Accounts for the year ended 31 December 2020, the ability
of Rurelec to build up sufficient cash reserves to fund dividend
payments remains very uncertain unless the returns from the
Argentinian operations improve or further asset disposals are
achieved.
Board of Directors
There was a change to the Board of Directors during the period
covered by these condensed financial statements, Non-Executive
Director Brian Rowbotham resigned on 13 April 2021.
Coronavirus Pandemic (COVID-19)
The COVID-19 pandemic spread globally in Quarter 1 2020.
Widespread measures have been implemented globally by governments
to control the virus and to support economies in the markets where
the Group operates. However, it is uncertain whether those measures
will be successful in the long-term eradication of the virus or in
achieving recovery in those economies and over what timescale. The
magnitude and duration of the disruption and decline in business in
the markets in which the Group operates is currently uncertain.
The Argentinian Government imposed a tight lockdown on 19 March
2020. Argentina's Government, viewing EdS's output as an essential
service, issued instructions whereby the power plant should operate
with the smallest number of people possible, covering operational
shifts and preventive cleaning work with specific teams. All but
essential staff have been working remotely and not been coming to
the plant unless there is an equipment-related problem to address
at the plant. A wide range of preventative measure were implemented
to protect and safeguard staff. Furthermore, the importance of EdS
in the generation of electricity in the Chubut province means that
its output remains strategically important and a high priority for
CAMMESA.
Notwithstanding the above, it is still not considered possible
to estimate the long-term financial impact of COVID-19 on the
Argentinian economy at the present time, nor to anticipate the
economic and fiscal measures that the Argentinian Government will
impose in response. The pandemic is considered a non-adjusting
balance sheet event.
Andy Coveney
Executive Director
RURELEC PLC
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(unaudited)
for the half year ended 30 June 2021
(expressed in thousands of pounds)
__________________
Audited
Notes 6 months 6 months 12 months
to to to
30/06/21 30/06/20 31/12/20
GBP'000 GBP'000 GBP'000
------------------------------------- ------ --------- --------- ----------
Administrative expenses (443) (583) (1,110)
Other income - - 22
Other expense - - (1,826)
Operating loss (443) (583) (2,914)
Foreign exchange (losses)
/ gains (432) 1,259 (456)
Finance income - - 819
Finance expense - - (2,783)
------------------------------------- ------ --------- --------- ----------
(Loss) / Profit before tax (875) 676 (5,334)
Tax expense - - -
------------------------------------- ------ --------- --------- ----------
(Loss) / Profit for the period (875) 676 (5,334)
(Loss) / Profit per share 3 (0.16p) 0.12p (0.95p)
------------------------------------- ------ --------- --------- ----------
Other comprehensive income
Items that will be subsequently
reclassified to Profit & Loss:
Exchange differences on translation
of foreign operations 77 722 (130)
Total other comprehensive
income / (expense) 77 722 (130)
Total comprehensive (loss)
/ profit for the period (798) 1,398 (5,464)
RURELEC PLC
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(unaudited)
at 30 June 2021
(expressed in thousands of pounds)
___________
Audited
30/6/21 30/6/20 31/12/20
Notes GBP'000 GBP'000 GBP'000
------------------------------- --------- -------------------------- -------------------------- ---------
Assets
Non-current assets
Property, plant and equipment 7,230 8,229 7,371
Investment in Joint Venture 1,648 3,474 1,648
Trade and Other Receivables 4,496 6,665 4,586
13,374 18,368 13,605
----------------------------------------- -------------------------- -------------------------- ---------
Current assets
Trade and other receivables 1,032 3,333 1,142
Cash and cash equivalents 275 604 668
1,307 3,937 1,810
----------------------------------------- -------------------------- -------------------------- ---------
Total assets 14,681 22,305 15,415
------------------------------------------ -------------------------- -------------------------- ---------
Equity and liabilities
Shareholders' equity
Share capital 5,614 11,228 5,614
Share premium account - 22,754 -
Foreign currency reserve 870 1,645 793
Profit and loss reserve 7,773 (13,709) 8,648
------------------------------------------ -------------------------- -------------------------- ---------
Total equity 14,257 21,918 15,055
Current liabilities
Trade and other payables 420 382 353
Current tax liabilities 4 5 7
424 387 360
----------------------------------------- -------------------------- -------------------------- ---------
Total liabilities 424 387 360
------------------------------------------ -------------------------- -------------------------- ---------
Total equity and liabilities 14,681 22,305 15,415
------------------------------------------ -------------------------- -------------------------- ---------
RURELEC PLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(unaudited)
for the half year ended 30 June 2021
(expressed in thousands of pounds)
___
Share Share Foreign Retained Other Total
capital premium currency earnings reserve equity
GBP'000 GBP'000 reserve GBP'000 GBP'000 GBP'000
GBP'000
Balance at 01.01.20 11,228 22,754 923 (59,386) 45,000 20,519
Transfer from Other Reserve - - - 45,000 (45,000) -
Total transactions with
owners - - - 45,000 (45,000) -
Profit for the first
6 months - - - 676 - 676
Exchange differences
on translation - - 722 - - 722
----------------------------- ----------- ------------ ------------ ----------- ----------- ------------
Total comprehensive profit - - 722 45,676 (45,000) 1,398
----------------------------- ----------- ------------ ------------ ----------- ----------- ------------
Balance at 30.06.20 11,228 22,754 1,645 (13,709) - 21,918
Reduction in Share Capital (5,614) - - 5,614 - -
Reduction in Share Premium - (22,754) - 22,754 - -
Total transactions with
owners (5,614) (22,754) - 28,368 - -
Loss for the Period - - - (6,011) - (6,011)
Exchange differences
on translation - - (852) - - (723)
----------------------------- ----------- ------------ ------------ ----------- ----------- ------------
Total comprehensive loss (5,614) (22,754) (852) 22,357 - (6,863)
----------------------------- ----------- ------------ ------------ ----------- ----------- ------------
Balance at 31.12.20 5,614 - 793 8,648 - 15,055
Loss for the first 6
months - - - (875) - (875)
Exchange differences
on translation - - 77 - - 77
----------------------------- ----------- ------------ ------------ ----------- ----------- ------------
Total comprehensive loss - - 77 (877) - (798)
----------------------------- ----------- ------------ ------------ ----------- ----------- ------------
Balance at 30.06.21 5,614 - 870 7,773 - 14,257
----------------------------- ----------- ------------ ------------ ----------- ----------- ------------
RURELEC PLC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
for the half year ended 30 June 2021
(expressed in thousands of pounds)
__
Audited
6 months 6 months 12 months
to to to
30/06/21 30/06/20 31/12/20
----------------------------------- --------- --------- ----------
Result for the period before
tax (875) 676 (5,334)
from operations
Net finance expense - - 1,964
Adjustments for:
Unrealised exchange losses
/ (gains) 429 (1,259) 456
Write down on investments - - 1,826
Change in trade and other
receivables - 19 (73)
Change in trade and other
payables 53 (84) (112)
----------------------------------- --------- --------- ----------
Cash used in operating activities (393) (648) (1,273)
----------------------------------- --------- --------- ----------
Taxation paid - - -
----------------------------------- --------- --------- ----------
Net cash used in operating
activities (393) (648) (1,273)
----------------------------------- --------- --------- ----------
Cash flows from investing
activities
Repayments from joint venture
company - 1,115 1,804
Net cash generated from investing
activities - 1,115 1,804
----------------------------------- --------- --------- ----------
Net cash inflow before
financing activities (393) 467 531
----------------------------------- --------- --------- ----------
Cash flows from financing
activities
Loan Principal Repayments - - -
Loan Interest Repayments - - -
----------------------------------- --------- --------- ----------
Net cash used in financing - - -
activities
----------------------------------- --------- --------- ----------
(Decrease) / Increase in cash
and cash equivalents (393) 467 531
-----------------------------------
Cash and cash equivalents
at start of period 668 137 137
----------------------------------- --------- --------- ----------
Cash and cash equivalents
at end of period 275 604 668
RURELEC PLC
Notes to the Interim Statement
for the six months ended 30 June 2021
1. Basis of preparation
These condensed consolidated interim financial statements do not
constitute statutory accounts within the meaning of Section 435 of
the Companies Act 2006. The comparative figures for the year ended
31 December 2020 were derived from the statutory accounts for that
year which have been delivered to the Registrar of Companies. The
financial information contained in this interim statement has been
prepared in compliance with International Financial Reporting
Standards ("IFRSs") and in accordance with international accounting
standards in conformity with the requirements of the Companies Act
2006 and expected to apply to the Group's results for the year
ending 31 December 2021 and on interpretations of those Standards
released to date.
2. Accounting policies
These condensed consolidated interim financial statements have
been prepared in accordance with the accounting policies set out in
the Group's financial statements for the year ended 31 December
2020.
3. Earnings per share
6 months 6 months 12 months
to to to
30/6/21 30/6/20 31/12/20
----------- --------- -----------
Basic and diluted
Average number of shares 561m 561m 561m
in issue during the period
(Loss) / Profit attributable (GBP0.88m) GBP0.68m (GBP5.33m)
to equity holders of the parent
from continuing operations
Basic and diluted (loss) /
profit per share on continuing
operations (0.16p) 0.12p (0.95p)
----------- --------- -----------
4. Subsequent events
As announced on 9 September 2021, Termoelectrica del Norte SA,
an indirectly held 100% subsidiary, agreed the sale of its Frame
6B, originally purchased for the Arica project. for US $1.0
million. Net cash proceeds of US $ 0.9/GBP0.7 million will be used
for the Group's working capital requirements.
The COVID-19 pandemic spread globally in Quarter 1 2020.
Widespread measures have continued to be implemented globally by
governments to control the virus and to support economies in the
markets where the Group operates. However, it remains uncertain
whether those measures will be successful in the long-term
eradication of the virus or in achieving a full recovery in those
economies and over what timescale. The magnitude and duration of
the disruption and decline in business in the markets in which
Rurelec operates is uncertain. The Argentinian Government imposed a
tight lockdown on 19 March 2020. Argentina's Government, viewing
EdS's output as an essential service, issued instructions whereby
the power plant should operate with the smallest number of people
possible, covering operational shifts and preventive cleaning work
with specific teams. All but essential staff have been working
remotely and not been coming to the plant unless there is an
equipment-related problem to address at the plant. A wide range of
preventative measure were implemented to protect and safeguard
staff. Furthermore, the importance of EdS in the generation of
electricity in the Chubut province means that its output remains
strategically important and a high priority for CAMMESA.
Notwithstanding the above, it is still not considered possible
to estimate the long-term financial impact of COVID-19 on the
Argentinian economy at the present time, nor to anticipate the
economic and fiscal measures that the Argentinian Government will
impose in response. The pandemic is considered a non-adjusting
balance sheet event.
Changes to the Board of Directors, Executive Director Simon
Morris resigned on 17 August 2021 and a new Non-Executive Director,
Paul Shackleton, was appointed on 26 July 2021.
5. The Board of Directors approved this interim statement on 30
September 2021. This interim statement has not been audited.
6 . Copies of this statement are available at the Company's
website www.rurelec.com
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